Do you know any of your friends who enjoy consuming alcoholic drinks? If yes, try asking them the types of alcohol beverage they consumed. Trust me, there’s a very high chance Carlsberg, Royal Stout, Asahi, Skol, Kronenbourg and Somersby are one of the alcohol drinks they consumed. If that’s the case, your friends are contributing to Carlsberg Malaysia and if you are Carlsberg Malaysia’s shareholder, your friends are indirectly paying you in terms of declared dividends. Before showing you their initiatives to drive growth, there are few things you should know about Carlsberg Malaysia.

Carlsberg Product Cost Breakdowns

For every RM 100 you spent on Carlsberg products, RM 47.10 will be paid to government as part of the duties, RM 20.80 is used for distribution & admin cost, RM 7.80 used for raw material & packaging, RM 5.80 for staff cost, RM 3.50 goes to tax, RM 1.90 tagged under depreciation and RM 13.10 are Carlsberg Malaysia’s profit after tax. From the pie chart, it is clear that large amount of revenue generated are used to pay government duties.

Since we are breaking down the cost, let’s have a look at 8-years historical cost breakdown. In 2012, you can see that Carlsberg Malaysia has started to be more efficient in terms of their Distribution & Admin cost. It has decreased from 28.8% in 2012 to 20.8% in 2017. However, the duties have increased from 41.1% in 2015 to 47.1% in 2017. With the duties hike, it is inevitable for Carlsberg Malaysia to reduce their operating cost. But as you know, there is ONLY so much you can reduce in term of cost. Too much of cost reduction might have spillover effects on product’s quality.

Managing Hike in Duties

What Carlsberg Malaysia did in conjunction with their cost reduction method? The Company adopts both “Trade-Up” & “Trade-Across” strategy which also known as “Go Big in Premium” collective.

Trade-In = Strategy to increase market share by stealing from competitors.

Trade-Up = Strategy to encourage consumer to purchase bigger size in ml.

Trade-Across = Strategy to promote other regimen from existing product (eg, promote Kronenbourg beer after consumer has experienced Asahi beer).

The SAIL 22 strategy by Carlsberg Malaysia was “Go Big in Premium”. Since the market is quite saturated with different beer brands leading to the “Trade-In” strategy less effective, it makes sense for Carlsberg Malaysia to leverage on their brand loyalty and brand recall from existing consumer.

Implementing Trade-Up & Trade-Across Strategy

If you noticed in any hypermarket or supermarket, some beer brand will be shelved in a way that the bigger bottle is right beside the smaller bottle/cans. This is called the “Trade-Up” strategy in terms of shelving. By doing so, it encourages consumer to compare price per ml.

For “Trade-Across” strategy, try to imagine the whole aisle for beer beverage. You will notice how hypermarket and supermarket divide the aisle into “Value” and “Premium” categories by section.

Most of the time, the “Premium” section is located at the end of the aisle and is decorated in a very vibrant “feels” to attract “Value” consumer to premium section. As of 2017, Carlsberg Premium products had 24% growth due to the strategies they have adopted.

Obvious Risks

Yes, there are risks in every good news. Illicit beer in Malaysia!

“We estimate that illicit beer makes up 20%-30% of the total MLM market currently,”Source: thestar.com

Illicit beer has always been there and only the government can intervene to reduce the illicit beer market share. Given that Carlsberg Malaysia has recognized this risks and implemented different strategies as shown above to increase their revenue and profits, it is now our duty as an investor to find the intrinsic value of Carlsberg Malaysia by incorporating the risks and future growth.

Liked our key insights on CARLSBERG MALAYSIA? click here to read more articles . You can also check out some of our past articles on REITs or increase your investing knowledge by browsing through my articles on  Investing 101.